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Antitrust Alert: European Commission Fines Microsoft €561 Million for Breach of Commitments

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Antitrust Alert: European Commission Fines Microsoft €561 Million for Breach of Commitments

March 2013Alerts

The European Commission has imposed an unprecedented €561 million ($730 million) fine on Microsoft, finding it broke its pledge to offer consumers a choice of how they access the Internet, rather than defaulting to Microsoft’s Explorer browser. This is the first time a company has been fined for failing to comply with a so-called "commitment decision," that is, a decision whereby the Commission closes antitrust investigations without finding an infringement but in exchange for commitments.

This groundbreaking fine, reflecting what the EC determined to be a grave and longstanding violation, sends a stern warning to companies of the consequences of broken commitments. As stated by EU Competition Commissioner Joaquín Almunia, "I hope this decision will make companies think twice before they even think of intentionally breaching their obligations or even of neglecting their duty to ensure strict compliance."

Background

This unprecedented fine is just Microsoft’s latest run-in with the Commission:

In 2004, the Commission fined Microsoft a then-record €497 million for abusing its dominant position by restricting interoperability between Windows PCs and non-Microsoft work group servers, and by tying its Windows Media Player to its Windows operating system.

In 2006, the Commission fined Microsoft €280.5 million for failure to comply with the 2004 decision.

In 2008, upon finding that Microsoft charged unreasonable prices for access to interface documentation for work group servers, the Commission fined the company €899 million for failure to supply interoperability information on reasonable and non-discriminatory terms. In June 2012, the EU General Court reduced this amount to €860 million.

The €561 million fine imposed by the Commission on 6 March 2013 relates to yet another matter, i.e. Microsoft's alleged abusive tying of its operating system to its web browser, Internet Explorer. Following a 2007 complaint by Opera Software ASA, the Commission initiated an investigation into whether Microsoft was skewing competition among browsers by systematically incorporating its own Internet Explorer browser into the Windows operating system. Unlike the 2004 investigation, which the Commission closed with the finding of an infringement, the presently-concerned investigation was closed pursuant to Microsoft's commitments, as formalized in a Commission decision of 16 December 2009.

According to the Commission decision, Microsoft was required to display a "choice screen" or "ballot screen" until 2014, which would enable Windows users in the EU easily to select their desired web browser. Microsoft told the Commission at the end of 2011 that it was abiding by the deal. In fact, the choice screen was not rolled out in certain products following the launch in May 2011 of the Windows 7 Service Pack 1. As a result, for over 14 months, some 15.3 million users of this Windows version did not see the choice screen. The lapse came to light in July 2012, after rivals reported the absence of the choice screen. Indeed, no trustee had been appointed by the Commission to monitor Microsoft’s compliance with its commitments. Commissioner Almunia admitted that this omission had been "naive" and that the Commission would be inclined to use trustees to monitor future settlements.

Microsoft said it took full responsibility for the incident, which it has blamed on a technical error. The Commission was unswayed by Microsoft’s apologies. Commissioner Almunia considered Microsoft’s breach to be a "very serious infringement": "the lack of compliance is, as a matter of principle, a serious breach of EU law itself." The Commission therefore sought to clearly convey that such infringements would not be tolerated, irrespective of whether they are intentional or not.

The Commission’s approach in determining the fine

In calculating Microsoft’s fine, the Commission assessed the gravity and duration of the breach.

In adjudging the gravity of Microsoft’s breach, the Commission found that:

Microsoft’s failure to abide by an antitrust commitment was serious in itself.

Microsoft’s failure to display the browser choice screen, a central element of the commitments, constituted a core infringement.

Microsoft’s failure to show the choice screen affected a large numbers of users (15.3 million).

Regarding the duration of Microsoft’s breach, the Commission concluded that Microsoft failed to comply with its commitments for 14 months, from May 2011 to July 2012, when Microsoft corrected the problem. Because Microsoft’s commitments were to be in effect for five years, the 14-month lapse was considered significant.

In determining the fine, the Commission also took into account as a mitigating circumstance the fact that Microsoft readily admitted the mistake, promised to remedy it, and cooperated with the Commission by providing information which helped the Commission investigate the matter efficiently.

The €561 million fine represents 1.02% of Microsoft’s global turnover for its fiscal year ending 30 June 2012, meaning Microsoft has now paid over €2.2 billion to the Commission in the last decade alone.

This is yet another good example of the Commission's inflexible approach toward companies that disregard rules, whether deliberately or not.

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